Note to new readers: This is a regular update on the status of our XJO Iron Condor (Mark II) Model Portfolio. Please read the Trading Plan first in order to understand the objectives and the rules for trading this model portfolio.
April was a winning month for our iron condor model portfolio. The XJO settlement price for April was 5953.7 so all our April options (6150/6250 calls and 5450/5350 puts) expired worthless and we got to keep the $660 premium that we collected for this trade. The performance of the XJO Iron Condor (Mark II) portfolio as at April 2015 is -$10,785.
Although we had a winning month, it was pretty stressful especially when there was an RBA meeting just one week before expiry. XJO was trading just under 6000 and the market was anticipating another interest rate cut on April 7. Fortunately, the RBA decided to keep rates on hold so XJO remained below 6000. Had there been another rate cut, XJO could have soared and our winning trade might have turned into a loser.
As we cannot predict the outcome of RBA announcements, I would prefer not to have 6150 short calls open when XJO is trading just under 6000 just before the announcement, especially when we have experienced a 300 point rally in one week after the February rate cut. In my personal account, I closed my April 6150/6250 call spread on April 7 before the RBA announcement. This call spread was sold for 6 points and I bought them back at 4 points. I am happy to sacrifice some of my profit in exchange for peace of mind!
I opened our May trades on April 10 with 41 DTE. IV rank was 30% so I allocated 30% of our capital (or $6000) as per our Trading Plan. I sold 3 contracts of the 6225/6425 call spread and 5575/5375 put spread for a total of 20 points per contract or $600 for our iron condor.
Managing winners before expiry is one of the core components in trading the Tasty Trade way. To date, I have not included managing winners in our Trading Plan because the P&L is lower compared to holding to expiry as shown in the chart below.
Source: Tasty Trade Core Components video
However, the winning percentage is higher and the average number of days held is halved. With a lot of our risk occurring around monthly RBA meetings and options expiry, perhaps we should look into modifying our Trading Plan to include managing winners early. We do this in our Iron Butterfly model portfolio and it has been working well. I will do more research to see if this is viable for our XJO iron condors. I will write more about my findings in next month’s update.
Disclaimer: This post is for educational purposes only and should not be treated as investment advice. This strategy would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek investment advice if required.